Poor sales lead to credit woes

A new survey of small business owners finds that declining sales and lower real estate values are the main reasons why small businesses are having trouble getting credit.

“That means current small business problems will not be solved by simply focusing on lending issues,” said Denny Dennis, senior fellow at the National Federation of Independent Business Research Foundation. “Policy makers need to tackle weak demand and real estate.”

A survey of small businesses conducted for NFIB by the Gallup Organization found that 51 percent cited poor sales as their most pressing economic problem, followed by 22 percent who cited uncertainty. Only 8 percent cited access to credit as their biggest problem.

About 55 percent of small business owners tried to borrow money last year, the survey found. Of those, 40 percent had all of their credit needs met, 10 percent had most of their credit needs met, and 21 percent had some of their credit needs met. Only 23 percent reported that none of their credit needs were met.

Chances of getting credit were best for small businesses with high credit scores, community bank customers and owners of real estate that was collateralized for business purposes.

For those who were rejected, the most common planned use of credit was to fill cash flow needs.

The survey found that 95 percent of small business owners own real estate, including their primary residence, their business premises or investment real estate. About 20 percent hold at least one mortgage that finances other business assets, and 11 percent use real estate as collateral for business purposes.

For more information, see www.nfib.com/research

Watchdog rips plan

to exempt lending fund

The special inspector general for the Troubled Asset Relief Program has asked the Treasury Department to reconsider plans to exempt its proposed Small Business Lending Fund from the watchdog’s oversight.

The Treasury Department has proposed legislation that would create a $30 billion fund that would provide cheap capital to community banks for making loans to small businesses. It wants to reprogram $30 billion in unused TARP funds for this purpose, contending this would ease the credit crunch facing small businesses.

Although the Small Business Lending Fund would not be part of TARP, it would function similarly to TARP’s Capital Purchase Program, which provided money to banks in the form of preferred equity investments, notes Neil Barofsky, the TARP program’s special inspector general.

“The funds being utilized, the core mechanics, the economic terms of the program and even many of the participants all stem from TARP’s CPP,” Barofsky wrote in a letter to the Treasury Department.

Excluding the Small Business Lending Fund from his oversight “would have the unfortunate effect of insulating Treasury’s administration of SBLF from an oversight body that has already spent very substantial time and resources building the expertise and developing the relationships necessary to oversee the inextricably linked CPP,” Barofsky wrote.

This “could lead to significant exposure to waste, fraud and abuse as another oversight body gets up to speed,” he wrote.

Recipients of capital from the Small Business Lending Fund would pay the money back at much-lower rates if they report increases in their small business lending. This “leaves it vulnerable to potential fraud, and will require vigorous and experienced oversight,” Barofsky wrote.

Rep. Darrell Issa of California, the ranking Republican on the House Oversight and Government Affairs Committee, agrees with Barofsky.

He called the department’s plans to exclude the Small Business Lending Fund from Barofsky’s oversight “disturbing, but not altogether out of character.” Denying Barofsky “the ability to defend taxpayers sends a chilling message that IGs who conduct real oversight will be punished for holding this administration accountable,” he said.

See www.sigtarp.gov

702 problem banks;

failures highest since ‘92

More than 700 banks were on the Federal Deposit Insurance Corp.’s problem list by the end of December, up from 552 during the previous quarter.

Forty-five FDIC-insured institutions failed during the fourth quarter. That brought the total for 2009 to 140, the highest annual number since 1992.

Indicators of asset quality dropped during the fourth quarter, although the rate of decline slowed. Banks and thrifts charged off $53 billion in uncollectible loans, and noncurrent loans and leased increased by $24.3 billion.

Total loans and leases dropped by nearly 2 percent to $128.8 billion in the fourth quarter, the sixth consecutive quarter of decline. Commercial and industrial loans dropped by more than 4 percent to $54.5 billion, and real estate construction and development loans fell by more than 8 percent to $41.5 billion.

There was some good news: Provisions for loan losses totaled $61.1 billion in the fourth quarter, down 14 percent from the same quarter a year earlier.

FDIC-insured banks and thrifts reported a profit of $914 million, compared with a nearly $38 billion loss during the fourth quarter of 2008. Slightly more than half of all institutions reported higher profits, compared with a year earlier.